Crude rally pauses after strong gains

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wwTwo hundred and forty-six years after the birth of William Wordsworth, and the oil prices today are wandering lower (as lonely as a cloud) after yesterday’s inventory-draw sponsored rally. Hark, here are five things to consider relating to energy markets today:

1) Economic data has been light overnight; we’ve had positive house price data out of the UK, a deteriorating French trade deficit, and below-par Spanish industrial production. Weekly jobless claims are the main economic release of note in the US; they have come in at 267k, marking the longest streak below 300k since 1973 (think: Enter The Dragon, Live and Let Die).

2) Good things come in threes, and China affirms this as its foreign exchange reserves increased last month, following positive manufacturing and services data in recent days. Chinese FX reserves stopped the rot in March, increasing slightly after sliding for four consecutive months. Reserves fell $600 bln last year; they peaked at $4 trillion in mid-2014, and now currently reside at $3.212 trillion.

3) Angola is the latest of the petro-states to show signs of its economy unraveling. Angola relies on oil for some 95% of its export earnings (reminiscent of Venezuela), and for more than half of its government revenue. Hence given the slump in oil prices, Angola is having to turn to the IMF for a bailout as it has run out of money to pay for basic services such as trash collection.

Angola has relied heavily on Chinese investment in recent years, exchanging its oil for infrastructure projects. As Angola’s debt increases, it is having to send more oil to China to service its debt payments. As illustrated by our ClipperData below, China is the number one destination for Angola’s crude flows. Since the beginning of 2014, China has accounted for 43% of all Angola’s crude exports – a dominant trend which will likely continue:

ClipperData Angola crude oil exports

4) Venezuela is faring little better. Amid rolling blackouts due to a strained power grid, President Maduro has declared every Friday a holiday to save electricity. The recent El Nino weather system has caused an extreme drought, draining the Guri Dam, which supplies as much as 75% of the power consumed in Caracas. Venezuela is currently ranked as the world’s most miserable economy on the Misery Index.

5) Finally, we get the natural gas storage report today, and as spring abounds (and Texas temperatures charge towards 90 degrees Fahrenheit), its fair to assume that the winter withdrawal season is behind us, with an 8 Bcf injection expected to storage today (which compares to last year’s +6 Bcf, the five-year average of -19 Bcf). This would put us above 2012’s record of 2,472 Bcf at the end of March. Storage currently sits over 40% higher than last year’s level, 34% above the five-year average.

ng storage level